ANKARA (Reuters) - Bundesbank chief Jens Weidmann said he is open to discussion on including the Chinese yuan in the International Monetary Fund’s benchmark currency basket, adding that recent financial turmoil in China should not pose a lasting danger to the global economy.
Weidmann told Reuters that recent financial market turmoil in China and uncertainty about its economic outlook should not change the debate.
“I am open in the discussion about taking the yuan into the IMF currency basket,” he told Reuters ahead of a meeting of the Group of 20 industrial and emerging economies in Ankara, though he added that China must fulfil the conditions for inclusion.
“The currency basket should in principle reflect relative global economic strengths,” he added.
Beijing, keen for its currency to have equal billing with the euro, yen, pound and dollar, has been pushing for the yuan to be included in the Special Drawing Rights basket, which determines the mix of currencies that countries like Greece receive as IMF disbursements.
To be included in the SDR basket, IMF policymakers must decide the yuan is “freely usable,” or widely used to make international payments and widely traded in foreign exchange markets.
Beijing loosened government controls on the yuan last month, allowing its value to fall sharply. The IMF saw the policy shift as a step toward a freer exchange rate, potentially setting the stage for the yuan to become part of the SDR basket
On Thursday, IMF deputy spokesman William Murray said the fund was on track to complete a review of its SDR basket by the end of the year. Beijing has pushed hard for the yuan to be included.
Weidmann, who also sits on the European Central Bank’s policymaking Governing Council, did not expect the latest market turbulence in China to have a serious impact on the world economy.
The recent falls on China’s stock market were “partly a correction of the earlier dramatic rise in stock prices,” he said. “I don’t see a lasting danger for the global economy.”
Turning to monetary policy, he added: “Although monetary policy is ultra loose in most countries and the oil price low, the long-term growth outlook is rather subdued - and not just in the euro zone,”
This showed “the limits of what a very expansive monetary policy can achieve,” added Weidmann, who leads the hawkish camp on the ECB Council.
The ECB cut its growth and inflation forecasts on Thursday, warning of possible further trouble from China and paving the way for an expansion of its already massive 1 trillion-euro plus asset-buying programme.
Weidmann’s predecessor as Bundesbank chief, Axel Weber, said separately that, with its policy actions, “the ECB has assumed responsibility to buy time.”
“But I am firmly convinced that Europe will not find its way out of the existing dynamic without finally pressing ahead with fundamental structural reforms,” Weber told Germany’s Handelsblatt business daily.
Reporting by Gernot Heller; Writing by Paul Carrel; Editing by Caroline Copley and Toby Chopra